Managing risk in residential portfolios
An instrument for the benchmarking of risk for
real estate investors and social housing
associations
Rob Courtens
Bert Teuben
Maarten Broek
On the pulse of
the property world
Eindhoven, June 17th 2011
Agenda
• Introduction
• The Blundell risk dimensions
• Suitability for Dutch residential market
• Top down
• Bottom up
• Parameters and Ranking
•Towards the Risk Web
• Ambition/ Further research
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Introduction
• Investors point of view
• Return is reward for risk
• Risk based on volatility lacks diagnostic
content
• Risk based on volatility of past returns is
backward looking
(Blundell et. al., 2005)
• What causes volatility in portfolio returns?
Total return = income return + capital growth
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Blundell Risk dimensions
Sector
Balance Score
Void rate
Income return
Weighted Beta
Location
concentration
Tenant
concentration
Development
exposure
TICCS stress
score
Asset/ Lot size
concentration
Lease Length
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Introduction
• Also for Dutch residential investment market
What is the Dutch market????
• € 197 billion market size
• € 110 billion in residential (75 % private)
• € 19 billion in IPD/ROZ residential universe
But also: The Dutch social housing market
• € 243 billion market size (market value)
• € 66 billion in IPD/aeDex universe
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Suitablility for dutch residential market
Top Down
Dimension
Suitable to dutch
investment
market?
Suitable to
Data available at
residential market IPD Netherlands?
seperately?
Sector balance score
Yes
No
Yes
Income return
Yes
Yes
Yes
Location concentration
Yes
Yes
Yes
Development exposure
Yes
Yes
Yes
Asset concentration
Yes
Yes
Yes
Lease Length
Yes
No*
No*
TICCS stress score
Yes
Yes
No
Tenant concentration
Yes
No
No
Weighted Beta
Yes
Yes
Yes
Void Rate
Yes
Yes
Yes
* Data not relevant for residential market
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© IPD 2011
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Share ground rent
Type single/multi tenant
dwellings
Energy efficiency
Partly sold complexes
Developments
Overrented part of
portfolio
Portfolio age
Downside risk based on
historical returns
Asset Concentration
Location concentration
Concentration of rental
value
Turnover rate
Vacancy rate
Discount rate
Suitablility for dutch residential market
Bottom Up
Identifying risk dimensions for Dutch market
• IVBN report
• IPD/ROZ questionnaire:
14
12
10
8
min
6
mean
max
4
2
0
7
Parameter and ranking
• Concentration of rental value
• Development exposure
• Asset concentration
• Over-rented part of portfolio
• Location concentration
• Turnover rate
• Energy efficiency
• Portfolio age
• Weighted Beta
• Vacancy Rate
Commercial:
Commercial:
Turnover
No interesting
concentration
Bad
Concentration
Volatility
Based
energy
Commercial:
concentration
onof
rate
%invested
label
market
(valuation)
5outcomes
of
1945-1980
highest
assets
orSale
>no
rental
segments
€1.000/
label
income
in
value
5value
regions
month
props
Social:Social:
No interesting
Not
Concentration
same
enough
%
asgap
commercial
Social:
data
tooutcomes
1945-1974
maximized
yet
Total transformation
legal rent
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Towards the Risk Web
Index
As sAsset
et concentration
Index
70%
concentration
Loca ti on
Location
concentration
Tra ns formation
Weighted Betas
60%
FUND X
Fund xx
concentration
50%
Ga p i n % of maximized
Sale income
l egal rents
Share rental value
> € 1000
Va ca ncy
Turnover rate
share 1945 Age
- 1980
(1945- 1974)
40%
Regions
concetration
(demographic
decine) Regi ons concentration
30%
20%
index
FUND X
(demographic decline)
10%
Vacancy
14
Energy efficiency
Turnover ra te
0%
Wei ghted Betas
0
5
10
15
20
25
30
35
Effi ci ency ra te
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Ambition?
• Prediction of tracking error
• Quick and dirty research on volatility
• No statistically significant conclusions yet !
Vacancy
0.09
0.08parameters of dimensions should be discussed
• Underlying
0.07
• More long0.06
term average researchR² = 0.1765
0.05 with segmentations
• Play around
Vacancy
0.04
• Timing of 0.03
risk (correlation)
Lineair (Vacancy)
• Limitative0.02
set of definitions (with predictive use)
0.01
0
0
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8
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Thank you for your attention!
IPD Nederland
Busplein 30
1315 KV Almere
Nederland
Tel: +31 88 328 2200
Fax:+31 88 328 2201
www.ipd.com/netherlands
Intellectual Property Rights and use of IPD statistics as benchmarks
Whether in the public domain or otherwise, IPD's statistics are the intellectual property of Investment Property Databank Limited.
It is not permissible to use data drawn from this presentation as benchmarks.
© Investment Property Databank Limited (IPD) 2011. Database Right, Investment Property Databank Limited (IPD) 2011.
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